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Indonesia, Thailand Add to Emerging Market Worries

NEW YORK (
TheStreet) -- Earlier in the month I wrote about the
negative prospects in emerging markets, but it is quickly starting to become clear that this weakness has spread well beyond this year's disappointing stock performance in China.

The bearish pressure continues this week as foreign investors reduce exposure in light of broad-based speculation that stimulus programs and the era of "easy money" accommodation are winding down to a close.

One of the most important stories of late has been seen in India, where current account problems have driven the rupee to all-time lows. But the most troublesome element is the fact that these problems have filtered into peripheral areas as well.

The latest examples can be found in Thailand and Indonesia -- countries that are especially vulnerable to rising global interest rate environments. Slowing growth in China and falling exports to the eurozone and the U.S. have contributed to unsustainable current account deficits in these countries as well.

Recent data out of Indonesia show the country's current account deficit grew to $9.8 billion in the second quarter, nearly double the figure posted during the first quarter. Slower Chinese demand for coal and iron ore exports has helped push Indonesia's GDP growth below 6% for the first time in three years.

But even as exports decline and the rupiah falls to four-year lows, consumer inflation remains elevated. It is difficult for the Indonesian central bank (Bank Indonesia) to raise interest rates as a means for attracting capital, however, as this puts the country at risk for further slowdowns in GDP growth.

All of this points to an alarming scenario for those invested in Indonesian companies. Already this week we have seen single-session losses of more than 5% in the Jakarta Composite Index and the benchmark has now erased all of its previous gains on the year.

In Thailand, the second straight quarter of declining growth means the economy has entered into a technical recession. China is Thailand's largest trading partner, and reduced exports here as well have contributed to a second quarter GDP contraction of -0.3% (following the -1.7% decline seen in the first quarter). Another common theme is being expressed in the country's current account performance, with second quarter numbers suggesting a deficit of $5.1 billion, after posting a $1.3 billion surplus in the first quarter.

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